BSP approves bank capital buffer reform

The Bangko Sentral ng Pilipinas has approved a reform requiring covered banks to set aside releasable capital that can support continued lending during periods of financial stress.

The reform establishes the Positive Neutral Countercyclical Capital Buffer, or PN-CCyB, which allows banks to build capital buffers during periods of strong credit growth and draw them down in bad times.

Unlike minimum capital requirements, which banks must maintain at all times, the PN-CCyB is designed to help sustain credit to households and firms when economic or financial conditions weaken.

The regulation applies to universal and commercial banks, their subsidiaries and quasi-banks, and digital banks.

BSP Governor Eli M. Remolona Jr. said, “The reform will strengthen the country’s financial stability as it enables banks to set aside capital that can be released in bad times to keep credit flowing to households and firms.”

The BSP said the PN-CCyB will not increase overall capital requirements.

Instead, the reform reallocates part of banks’ existing Common Equity Tier 1 capital into a releasable buffer.

Common Equity Tier 1, or CET1, refers to high-quality capital that banks maintain as a cushion against risks.

Under current rules, banks must maintain CET1 of at least 6% of risk-weighted assets.

With the PN-CCyB, 1.5% of CET1 will be designated as a releasable buffer.

This leaves a minimum CET1 requirement of 4.5% of risk-weighted assets, consistent with Basel III standards intended to make banks more resilient.

Risk-weighted assets refer to bank assets adjusted based on their level of credit, market and operational risk.

The BSP said all other capital requirements will remain unchanged.

These include the minimum Tier 1 ratio and the Capital Adequacy Ratio.

The Tier 1 capital ratio measures a bank’s core capital, such as common equity and disclosed reserves, relative to its risk-weighted assets.

The measure indicates a bank’s ability to absorb losses while continuing operations using its highest-quality and most loss-absorbing capital.

The Capital Adequacy Ratio, or CAR, measures a bank’s total qualifying capital, including both Tier 1 and Tier 2 capital, relative to its risk-weighted assets.

CAR reflects a bank’s capacity to withstand financial shocks and protect depositors under BSP and international prudential standards.

The BSP said the reform is timely amid heightened global risks and uncertainties arising from geopolitical tensions.

The central bank said the Philippine banking system is well-positioned to adopt the measure, with a CET1 ratio of 15.06% as of end-December 2025.

That level is well above regulatory requirements, according to the BSP.

Remolona said, “The Philippines joins countries that have built releasable buffers ahead of potential crises. This enhances our ability to respond swiftly to shocks without increasing the overall capital burden on banks.”

The new rule is contained in BSP Circular No. 1235, Series of 2026.

The BSP said implementation will be phased.

Universal and commercial banks, their subsidiaries and quasi-banks will be given one year from effectivity to comply.

Digital banks will be given two years to comply.

The reform aligns the Philippines with a growing international move toward positive neutral capital buffers, which give regulators more room to release capital during shocks without forcing banks to cut lending.

The countercyclical capital buffer is part of the Basel III framework, a set of global banking standards developed after the global financial crisis to strengthen bank capital, liquidity and risk management.